New Zealand is in week three of a lockdown and suffering widespread job losses and deep economic uncertainty, but first home buyers are feeling more up-beat about their chances of buying a home than they were two years ago.
In a survey of 10,000 Kiwis carried out this week by the First Home Buyers Club, nearly 30 percent of respondents said they were extremely confident they would be able to buy a house in the next three years.
The First Home Buyers Club, which provides advice and information for Kiwis trying to get a foot on the property ladder, asked its members to rate their chances of owning a home by 2023. Forty eight percent felt extremely confident while 15 percent were extremely unconfident.
In a similar poll carried out by the club in 2018, just 22 percent of respondents felt extremely confident about securing a property within three years, while nearly 32 percent were extremely unconfident about their prospects.
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Lesley Harris, a director at the First Home Buyers Club, says the lift in buyer confidence levels is no surprise, even with the housing market on hold as a result of the coronavirus. She credits low interest rates and the introduction of first home buyer-friendly initiatives such as the HomeStart grant, the Welcome Home loan scheme and KiwiBuild.
The introduction of KiwiBuild has boosted first home buyer confidence.
“People look at the three-year period and they think they can save up [for a deposit]. They still want to own a home,” she says.
However, buyers felt confident about the market right now. Just 22 percent of respondents felt confident they would be able to buy a home in the next three months, compared to 51 percent who rated themselves unconfident.
Two thirds of first home buyers – 66 percent - were worried about the drop in the value of their KiwiSaver funds, while 34 percent were worried about job security and 39 percent were scared they might lose income. However, nearly one in five buyers (23 percent) felt that house prices might drop.
“For first home buyers, that drop in their KiwiSaver is the downside,” says Harris. “But the message is that KiwiSaver is a long-term investment - it’s going to recover.”
Buyers on the fence
John Bolton, of Squirrel Mortgages, says the economic uncertainty caused by the coronavirus will have an effect on buyer mentality.
He sees two camps of first home buyers right now. The bigger, more cautious group is sensitive to what other people are doing. “They’re just too nervous, worried about their job stability or just worried generally,” he says.
“They are very driven by sentiment and the news they’re reading. When it’s bad, they’re on the fence; when it’s good they’ll come back.”
He says this group is backing off and assessing the situation, but adds: “They’ll come back, maybe later in the year.”
Bolton expects that the second, more confident group will view the current situation as an opportunity, guessing that there will be more properties on the market and less competition for it.
Bolton says he is still seeing a reasonable level of inquiry from first home buyers, who are using the lockdown to process their paperwork and ensure they are in a position to take advantage of the banks when they are ready to start processing new loan applications, after weeks of handling mortgage queries from existing borrowers. He expects banks won’t change how they’re applying lending criteria, which, he says, have always included factors such as job stability.
“Borrowers with less than 20 percent deposit will always have a credit manager fully assess the loan. They might be a little bit more cautious about what industry you work in or the impact on your income, but they’re not silly,” he says.
ANZ’s head of mortgages, Glenn Stevenson, agrees. “The current situation doesn’t change our obligations towards first-home buyers, or how we assess them for a home loan. As a responsible lender we must ensure that the first home buyer has an appropriate deposit and can repay their loan comfortably,” he says.
KiwiSaver shock
Stevenson says many first home buyers will be relying on their KiwiSaver, which now has a smaller balance that it did before the lockdown.
“It’s been a shock for some people. The dynamic is that people are saving into a vehicle [fund] that has volatility in it, but until now it’s been an environment where values have been increasing,” he says.
“So that’s hit home that values can change quite quickly.”
Stevenson says that the bank is helping customers understand how this might affect what they can borrow, and to explore other options for getting into their first home, saying the desire to own a home has not gone away.
“[Buyers] are taking stock of the situation, thinking ‘I’m not going to rush, I’m going to understand the situation.”
He sees some first home buyers being “cautiously optimistic” that a better supply of houses and maybe even price decreases might be reasons to get into the market. But Stevenson emphasises that the jury is still out on where prices will go.
Still the dominant buyer group
Hamish McLeod, a real estate agent with Harcourts in Christchurch, says first home buyers should weigh up the potential drop in their KiwiSaver deposits against the improved serviceability of a loan because of reduced interest rates.
Christchurch development, he says, was finally picking up in the past 12 to 18 months, so first home buyers have their pick of new properties on the suburban fringes like Halswell or Rolleston, or urban infill town houses close to the city at affordable starter prices of $400,000 to $500,000.
In Auckland, where the “affordable” end of the market is closer in price to $700,000, the Real Estate Institute of New Zealand recently named Avondale as the most affordable suburb within 10 km of the central city. The suburb has a median price of $800,000. The institute also picked Glen Eden, which is 15km from the CBD and has a median price of $698,000, as being extremely good value for first time buyers.
Pete Evans, national director of residential projects at Colliers, says that first home buyers, at least those with jobs, will enter the market and will benefit from a pull-back by investors.
“First home buyers are owner-occupiers, they’re buying for lifestyle reasons and will become the dominant sector of the market,” he says.
Evans says that new entrants to the market will be buying in new developments, close to amenities and transport, and that the delays to builds caused by lockdown measures, will give them a chance to get in now and then “roll into the upswing of the cycle in the medium to long-term”.
